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Instead of the fixed-sized exponent and fixed-sized fraction used in IEEE floating point numbers, posits encode the exponent with a variable number of bits (a combination of regime bits and the exponent bits), such that fewer of them are needed, in most cases. That leaves more bits for the fraction component, thus more precision. The reason for using a dynamic exponent is that it can provide tapered accuracy. That means values with small exponents, which are the ones commonly used, can have more accuracy, while the lesser-used values that are very large and very small have less accuracy. Gustafsonā€™s original 2017 paper on posits provides an in-depth explanation of exactly how this works.